World Bank trims East Asia growth forecast, Thailand’s worst

The World Bank cut its 2015 and 2016 growth forecasts for developing East Asia and Pacific (EAP), saying the outlook was clouded by the risk of a sharp slowdown in China and possible spillovers from expected increases in US interest rates.

The Washington-based lender in its new report on October 5 now expects the EAP region, which includes China, to grow 6.5 per cent in 2015 and 6.4 per cent in 2016, down from 6.8 per cent growth in 2014. Its previous forecast in April was 6.7 per cent in each of 2015 and 2016.

Thailand has been worst hit by the revision. The bank slashed Thailand’s economic growth this year to 2.5 per cent from 3.5 per cent, the lowest in the EAP region. The military-led country’s growth next year was also cut to 2 per cent from 4 per cent in the previous forecast in April. However, it is still an improvement as Thailand’s economy grew just 0.9 per cent in 2014.

The main challenges for Thailand continue to be the uncertain global environment affecting Thai exports, and internal stability, the bank said in its report. Thai household consumption and private investment should recover only modestly from last year while public spending will contribute to almost half of growth this year.

“Tourist receipts were expected to record healthy growth, in a context of enhanced political stability, although prospects may be hampered by the attack on the Erawan Shrine in August,” the report reads.

Exports of goods will remain subdued, growing by less than 1% in dollar terms as key export prices fall and demand from China and the Association of Southeast Asian Nations, or ASEAN, weaken, it said, while imports of goods to Thailand will continue to contract as prices of fuel imports, around a fifth of total imports, remain low.

The Philippines’ growth has also been downgraded. The World Bank assumes that the country will grow slower than previously thought this year and in the next two years. Growth forecast for 2015 was lowered to 5.8 per cent from 6.5 per cent previously, and to 6.4 per cent next year from 6.5 per cent. The growth forecast for 2017 was cut to 6.2 per cent from 6.3 per cent.

Malaysia is expected to see slower growth and lower public revenues this year, due to weaker commodity prices. According to the World Bank report, “ongoing political noise” has weighed on sentiment regarding Malaysian financial assets and the ringgit, with a risk of this further constraining policy space and filtering into real sector activity, especially productive investment, given that over 80 per cent of machinery investment is in the form of imported capital goods.

Consumer and business confidence and spending in Malaysia may be eroded more than currently expected by more negative income and wealth effects from exchange rate or other policy adjustments, including due to the trajectory of key trading partner economies and global financing conditions.

The slowdown in China, which absorbs more than 8 per cent of Malaysia’s GDP, could pose further risks. Finally, should Brent crude prices move lower, this would erode Malaysia’s fiscal position, external balances, and GDP growth.

Overall, “the baseline scenario for regional growth [in EAP] is subject to a greater-than-usual degree of uncertainty, and risks are weighted to the downside,” the report said, adding that the downward revisions to regional growth forecasts mainly reflect a moderate slowdown in China’s economy, which it sees growing 6.9 per cent in 2015 and 6.7 per cent in 2016, down from 7.3 per cent in 2014. The previous forecast was for China to grow 7.1 per cent in 2015 and 7.0 per cent in 2016.

Growth in developing East Asia excluding China is expected to hold steady in 2015 at 4.6 per cent before accelerating to 4.9 per cent in 2016, the World Bank said. Those were down from previous forecasts of 5.1 per cent growth in 2015 and 5.4 per cent in 2016.

Further declines in Asian currencies against the dollar, especially the Malaysian ringgit and the Indonesian rupiah, could cause balance sheet strains in countries with significant dollar-denominated debt.

“Stress may arise whenever individual firms and sectors suffer from a significant concentration of liabilities,” the report said, adding that such risks are a special concern in Indonesia, Malaysia, Thailand and Vietnam.

The World Bank cut its 2015 and 2016 growth forecasts for developing East Asia and Pacific (EAP), saying the outlook was clouded by the risk of a sharp slowdown in China and possible spillovers from expected increases in US interest rates.

The Washington-based lender in its new report on October 5 now expects the EAP region, which includes China, to grow 6.5 per cent in 2015 and 6.4 per cent in 2016, down from 6.8 per cent growth in 2014. Its previous forecast in April was 6.7 per cent in each of 2015 and 2016.

Thailand has been worst hit by the revision. The bank slashed Thailand’s economic growth this year to 2.5 per cent from 3.5 per cent, the lowest in the EAP region. The military-led country’s growth next year was also cut to 2 per cent from 4 per cent in the previous forecast in April. However, it is still an improvement as Thailand’s economy grew just 0.9 per cent in 2014.

The main challenges for Thailand continue to be the uncertain global environment affecting Thai exports, and internal stability, the bank said in its report. Thai household consumption and private investment should recover only modestly from last year while public spending will contribute to almost half of growth this year.

“Tourist receipts were expected to record healthy growth, in a context of enhanced political stability, although prospects may be hampered by the attack on the Erawan Shrine in August,” the report reads.

Exports of goods will remain subdued, growing by less than 1% in dollar terms as key export prices fall and demand from China and the Association of Southeast Asian Nations, or ASEAN, weaken, it said, while imports of goods to Thailand will continue to contract as prices of fuel imports, around a fifth of total imports, remain low.

The Philippines’ growth has also been downgraded. The World Bank assumes that the country will grow slower than previously thought this year and in the next two years. Growth forecast for 2015 was lowered to 5.8 per cent from 6.5 per cent previously, and to 6.4 per cent next year from 6.5 per cent. The growth forecast for 2017 was cut to 6.2 per cent from 6.3 per cent.

Malaysia is expected to see slower growth and lower public revenues this year, due to weaker commodity prices. According to the World Bank report, “ongoing political noise” has weighed on sentiment regarding Malaysian financial assets and the ringgit, with a risk of this further constraining policy space and filtering into real sector activity, especially productive investment, given that over 80 per cent of machinery investment is in the form of imported capital goods.

Consumer and business confidence and spending in Malaysia may be eroded more than currently expected by more negative income and wealth effects from exchange rate or other policy adjustments, including due to the trajectory of key trading partner economies and global financing conditions.

The slowdown in China, which absorbs more than 8 per cent of Malaysia’s GDP, could pose further risks. Finally, should Brent crude prices move lower, this would erode Malaysia’s fiscal position, external balances, and GDP growth.

Overall, “the baseline scenario for regional growth [in EAP] is subject to a greater-than-usual degree of uncertainty, and risks are weighted to the downside,” the report said, adding that the downward revisions to regional growth forecasts mainly reflect a moderate slowdown in China’s economy, which it sees growing 6.9 per cent in 2015 and 6.7 per cent in 2016, down from 7.3 per cent in 2014. The previous forecast was for China to grow 7.1 per cent in 2015 and 7.0 per cent in 2016.

Growth in developing East Asia excluding China is expected to hold steady in 2015 at 4.6 per cent before accelerating to 4.9 per cent in 2016, the World Bank said. Those were down from previous forecasts of 5.1 per cent growth in 2015 and 5.4 per cent in 2016.

Further declines in Asian currencies against the dollar, especially the Malaysian ringgit and the Indonesian rupiah, could cause balance sheet strains in countries with significant dollar-denominated debt.

“Stress may arise whenever individual firms and sectors suffer from a significant concentration of liabilities,” the report said, adding that such risks are a special concern in Indonesia, Malaysia, Thailand and Vietnam.